McCormick’s proposed $44.8 billion acquisition of Unilever’s food business cleared a major regulatory hurdle in the US this week, but the deal is not yet in the clear, with the UK’s Competition and Markets Authority still reviewing the transaction and a US senator calling for closer scrutiny of the deal.
The Federal Trade Commission on Oct. 5 granted early termination of the antitrust waiting period mandated under the Hart-Scott-Rodino Act, clearing the transaction to proceed past that US pre-merger review hurdle. The FTC says early termination may be granted when the reviewing agencies determine that a transaction is unlikely to substantially lessen competition.
The determination brings McCormick and Unilever one step closer to combining their condiment, flavor base and spice portfolios in what would become a “flavor-led” powerhouse with an enterprise value of about $65 billion.
The proposal triggered an immediate negative market reaction that caused share prices for both businesses to tumble, following its announcement in March. Investor concerns include the deal’s complicated Reverse Morris Trust structure, which would let Unilever spin off the business more tax-efficiently than an outright sale, investors’ limited familiarity with each business and the food industry’s troubled history with mega-mergers.
Despite initial concerns, executives from both companies have extolled the virtues of the deal bringing together Unilever’s iconic condiment and flavor brands, including Hellmann’s and Knorr, with McCormick’s well-established hot sauces and condiments, including Frank’s RedHot, Cholula and French’s, as well as its eponymous spices and seasonings under Old Bay, Zatarain’s, Grill Mates and more.
Among the lingering concerns are whether McCormick can efficiently incorporate the Unilever business, which executives dismissed, noting the former’s track record of integrating other large acquisitions, including Reckitt Benckiser’s food division.
UK review continues
While clearing FTC’s antitrust review brings McCormick and Unilever closer to a merger, the deal’s success still hinges in part on approval from the UK CMA, which formally launched in September an investigation into whether the deal would compromise competition in UK markets.
CMA launched a Phase 1 merger inquiry into the acquisition after receiving comments on the potential impact of the deal, while Unilever separately proposed spinning off into an independent entity its flagship mustard brand Colman’s amid concerns combining it with McCormick’s French’s mustard business could weaken competition.
The deadline for CMA’s Phase 1 review is Nov. 11, at which point the deal could move one step closer to completion if the authority concludes the transaction doesn’t raise competition concerns or if it determines specific issues that can be resolved without additional review.
If CMA is not satisfied with its Phase 1 review it could up the ante with a Phase 2 referral, which would entail a much more detailed investigation and suggest the authority had serious competition misgivings.
A Phase 2 investigation is not the same as blocking the transaction, but it could prohibit some or all of the transaction if the authority identifies competitive challenges and anti-trust issues. It also could clear the deal subject to specific remedies or divestitures, or if it doesn’t find any problems, clear it with no further change.
Senator calls for closer scrutiny of food mergers
The same day FTC granted early termination of the McCormick-Unilever deal review, Sen. Elizabeth Warren, D-Mass., voiced concerns about the proposed acquisition and two others in the food industry that she said together “threaten to drive costs up further for struggling families.”
Warren, who has a long track record of anti-trust and consumer protection advocacy, asked FTC and DOJ in an Oct. 5 letter to “carefully scrutinize the potential anticompetitive implications” of proposed acquisitions by McCormick of Unilever, the supermarket chain Kroger of regional player Giant Eagle, and the restaurant wholesale market behemoth Sysco of Jetro Restaurant Depot.
“In isolation, each of these mergers would raise competition concerns; together, they appear to reveal a growing consolidation trend, driven by weak antitrust enforcement under President Trump, that raises costs and hurts consumers, restaurants and small businesses,” she wrote.
Regarding McCormick’s acquisition of Unilever’s food business, she argued the former’s “increased market share will leave retailers with fewer major suppliers from which to source popular pantry staples and thus give it more power to dictate prices to retailers, while also making it more difficult for smaller manufacturers to compete.”
While Warren’s letter did not stop FTC from granting early termination and does not alter the CMA’s independent review of the transition, her concerns about supplier concentration and competition in pantry staples overlap with the broader questions regulators are examining as McCormick and Unilever seek approval for their deal.
For McCormick and Unilever, the next major regulatory milestone remains the CMA’s Nov. 11 Phase 1 decision, which will determine whether the transaction can proceed in the UK without a deeper competition investigation.
While her letter did not stop FTC and she does not have authority of UK’s CMA, her concerns amplifies the antitrust questions central to CMA’s ongoing investigation.
